At Treelife, Garima balances the twin responsibilities of and leading the legal and compliance teams. She advises start-ups and investors irrespective of their scale on matters like corporate equity structuring, data protection issues, fundraising and employment issues. She has been a critical part of the journey of startups like CleverTap and WhiteHat Jr. An avid mooter in her student career at HNLU, Raipur, she continues to speak on multiple forums like NASSCOM, UN women and also has a Tedx Talk on how ‘knowing the law changed her life’.
Majority of entrepreneurs are wary of legal issues. Instead of looking at law as a facilitator of business, it is perceived as a hurdle. The fear of unknown always poses a challenge.
India, a coveted investment jurisdiction, is also notorious for its archaic system in place for management of businesses. While, several efforts are continuously made to digitise and automate processes, operational hurdles are a part and parcel of running a business.
Proactive and vigilant checkpoints on the legal front ensure that your business run’s smoothly.
Enumerated below are a few speed bumps that entrepreneurs face at every phase of your business:
Phase I: Ideation
An idea is only as good as its execution. Once the validation of an idea is completed, turning the same into a business requires the entrepreneur to choose the form of a legal entity to be incorporated. This choice is the most important one and shall be given due consideration. The decision has to be largely based on long-term vision and objective of the business.
For eg: If the objective for a business is to raise funds by way of an equity participation then it shall be wise for business to form a private limited company as opposed to an LLP or other form of entity, as the case maybe.
Phase II: Launch of Business
Once the entity is formed, it is time to launch the business. This requires consideration on dual legal areas:
- Intellectual Property: Entrepreneurs struggle to understand and decide on registration of their intellectual property. This often leads to infringement issues which in the longer run cost more than the actual application of the registration of the IP.
- Permits/ Licenses if required: Every business requires permits and licenses that are a prerequisite for their functioning. One of the major barriers to business is the lack of information on the same. India has numerous laws intersecting with each other and the archival process leaves a lot to be desired. This turns out to be a major challenge to starting up a business.
Phase III: Running Your Business
This is the most important phase for a business. The legal challenges at this phase are the highest. This phase is when most entrepreneurs feel the need to have contracts in place. The types and content of the contracts is dependent on the type of business. But there are certain essential contracts that are common to all businesses. The essential contracts to be in place for a business are enumerated below:
- Employment Agreements
- Leave and License Agreements
- Non-Disclosure Agreements
- Vendor Agreements
- Service Agreements
- Terms & Conditions and Privacy Policy (for the website or app as the case may be)
(Note: The above list is only illustrative and not exhaustive. The same shall be required to changed based on the nature and requirement of a particular business)
Phase IV: Fundraising
When an entrepreneur looks at expanding their business, fundraising comes into the picture one way or the other. There are multiple mediums to raise funds. Out of the variety of the options available for entrepreneurs for fundraising, popular ones include debt funding on one hand and equity funding on the other. The various challenges that an entrepreneur faces in this phase include:
- Structuring the fund raising exercise;
- Documentation for fund raising
- Compliance
Business at various phases, poses different kinds of challenges. Legal measures in India are more reactive than proactive. The basic idea for simplifying legal barriers for smooth business functioning is a mind-set shift for legal measures. While entrepreneurs often run for legal help and expertise when things have gone worse instead of investing in avoiding any trouble. Across time, what works to combat a legal challenge varies from one business to another. But there are a few exercises that help in avoiding legal hassles.
- Have contracts in place
Crystallising commercial arrangements in black and white promotes transparency and trust. Therefore making it imperative to enter into contracts for all business arrangements.
- Clarity of thought and transaction
Objective of the business transaction should be determined clearly in every arrangement. This promotes clarity in the contracts and avoids ambiguity in understanding.
- Short form documents as opposed to out-dated long form documents
Indian contracts are often lengthy and pose as a challenge to entrepreneurs. Objective drafting of contracts, enables contracts that are crisp and to the point. This in turn helps in avoiding disputes because of no ambiguity on important issues.
- Mathematical representations for complex commercial matters
One of the easiest ways to avoid ambiguity and reduce disputes in businesses is to use mathematical representations or examples in documentation. This completely eliminates any element of subjectivity and empowers parties to make business decisions with clarity.
- Use of technology
Infusion of technology in day-to-day business in any area leads to amazing results. Similarly, to combat various legal barriers, businesses can always opt for technology. Automated updates, contract-drafting tools, alternate means of dispute resolutions through technology and many other similar platforms.
With wide exposure and access to technology and the Internet, businesses instead of being wary of the law, should look at it as an enabler of businesses and a mechanism to reduce the risk involved in conducting a business. While legal barriers may be prevalent, the way to combat these, starts with a mind-set shift primarily-from fearing the law, to using the law as an instrument of defence, one has to pave the way, slowly but steadily.